Ultimate Reports Higher Q1 Loss, Sales Drop 2%

6/07/2004 02:00:00 AM Eastern

By: By Jeff Malester

A sales shortfall in February and March, combined with the decision to aggressively reduce inventory before it became discontinued, were the primary contributors to a widening loss at high-end specialty A/V retailer Ultimate Electronics during the chain's fiscal first quarter.

Ultimate reported a net loss of $8.4 million for the three months, ended April 30, compared with a net loss of $1.4 million in the year-ago period.

Sales for the first quarter edged downward 2 percent, dropping to $152.4 million, compared with $155.7 million in the same three months in 2003. Comp-store sales for the three months decreased by 11 percent. May's comp sales were off 6 percent.

Gross profit margin slipped 31.5 percent from 32.7 percent, primarily due to the impact of SKU reduction in certain categories, a concentrated effort to reduce the amount of product that becomes discontinued inventory, and aggressive promotions.

At the same time, expenses climbed dramatically in the first quarter, reaching 40 percent, as a percentage of sales, compared with 34.2 percent year-on-year. The retailer pinpointed fixed general and administrative expenses and payroll increases for a 5.3 percent jump as a percentage of sales in the three months. This was due to lower-than-anticipated quarterly sales, an additional seven stores opened in the second half of last year, and increased costs of operating a new MIS.

"While reducing the standing levels of end-of-life cycle inventory and discontinued merchandise during the quarter had a negative effect on profitability, we expect our operating results to benefit in the second half of the year from a more profitable overall level of inventory," said Dave Workman president/CEO. Ultimate's inventory finished the first quarter at $113.9 million, an 8 percent increase year-over-year, but no change from the end of the previous quarter.

Workman also said he believes the retailer has resolved most of its remaining MIS issues and should realize operating efficiencies because of this by the end of the year.